Trading entities take advantage of prime brokerage service offerings, as well as the capital strength and reserves, of numerous prime brokerage firms by executing transactions with multiple prime brokers. That is, one trading entity may have relationships with more than one prime broker in order to take advantage of efficiencies in reaching the market and other proprietary access or information available to one prime broker over other prime brokers. In a way, this distributed relationship with multiple prime brokers increases the trading entity's opportunity to make trades throughout the market.
In addition, a trading entity may utilize sophisticated algorithmic programs to dictate its trading activity with each of these prime brokers and to the market. Vital to the execution of these algorithmic programs is the time needed to execute those instructions within the market. For instance, as part of the investment strategy, some sophisticated algorithmic programs include instructions to cancel pending trading orders. It is imperative that cancellation of these pending trading orders occurs within the least amount of time. As more time elapses after a decision is made to cancel trading orders, the potential to fill pending trading orders that were slated for cancellation increases, which is opposite to what the trading entity desires within the context of its trading strategy.
However, cancellation of pending orders or transactions of a trading entity can be a burdensome process. In one case, for each pending order a cancellation instruction must be placed with the corresponding liquidity destination that is servicing that order. Taken in isolation, each cancellation order is sent to the corresponding liquidity destination very quickly. While this may not seem critical for a single cancellation order, when the number of cancellation orders dramatically increases, the overall time to send all cancellation orders also will increase. This will adversely effect the time to execute all cancellation orders at corresponding liquidity destinations.
Further, time-to-market is critical in gaining an advantage over competing trading entities. In this context, time-to-market means the time necessary to send all desired cancellation messages for all applicable orders. This is different from the time that it takes to send a single cancellation request since cancellation requests can “queue up” one upon another. That is, even for each order or transaction taken in isolation, trading entities demand lower and lower time-to-market values. As such, even though sending a cancellation order to a corresponding liquidity destination may occur quickly (e.g., within fractions of a second), it is imperative that this time-to-market for the cancellation instruction be lowered even more. As a result, by lowering the time-to-market values, not only will the trading entity see an immediate benefit for each cancellation instruction, but may achieve a compounded benefit as the numbers of cancellation instructions increase.